6/03/2006 @ 2:50AM

Wind Man

Tulsi Tanti anticipated India’s enormous yen for renewable energy and became a billionaire in the process.

Confronted in 1994 with escalating power costs, Tulsi Tanti’s young textile business was in dire straits. With survival at stake, Tanti chanced upon a solution that was literally blowing in the wind. Commissioning two windmills to supply electricity for the family’s factory in Gujarat, on India’s west coast, he realized that he had stumbled onto a promising business opportunity. In a power-starved nation, renewable energy has a favored future.

India’s power is woefully inadequate during summer months when temperatures soar to 115 degrees Fahrenheit and demand peaks. In Delhi, the national capital, a recent heat wave compelled the government to mandate early shuttering of stores and a ban on home air-conditioner use until after 9 p.m. “Our country needs power for its economic growth, and clean, green power is the best option,” says Tanti, 48. Acting on that belief, he radically shifted his enterprise into what is now Suzlon Energy, which just reported fiscal 2006 revenue of $868 million. That was nearly double the figure for the previous year.

Since changing course in 1994, Tanti has become Asia’s foremost wind man and one among India’s growing crop of new billionaires. Suzlon Energy makes the machinery that turns wind into electricity. The 70% stake that Tanti and his three brothers own in their Bombay Stock Exchange-listed company is worth $4.3 billion.

Now situated in Pune, a city known for its engineering skills, Suzlon is a prime example of India’s emerging story in manufacturing, less told than the technology-services tale. A fellow Pune billionaire, Baba Kalyani, has built Bharat Forge, which makes auto chassis, into a world beater. Tanti wants a similar status for Suzlon.

The company already ranks as the world’s eighth-largest producer (in terms of installed capacity) of wind turbine generators. Tanti is aiming high and wants to close the gap with Suzlon’s biggest European competitors, Denmark’s Vestas Wind Systems, Germany’s Enercon and Spain’s Gamesa. Suzlon’s surging revenues are only one-fifth those of Vestas, but the Indian outfit has been consistently profitable for six years. Vestas lost money in each of the last two years.

At home, where it still makes 90% of its sales, Suzlon has 35% of the market. It has the wind at its back in the form of public policy. Businesses that buy wind turbogenerators get a tax break by way of accelerated depreciation. Also, with its mission to provide “power for all by 2012,” India’s federal government has introduced legislation making it compulsory for electricity distributors to get a specified quantum from renewable energy sources. There is a separate ministry for nonconventional energy, which has estimated the country’s capacity to generate wind power at 45 gigawatts (peak), ten times current installed capacity. If the blades spin fast enough to deliver on average 40% of their peak power, that 45 gigawatts would be the equivalent of 18 gigawatts of steady power. In the U.S. a gigawatt is enough to supply a population of 300,000; in less developed India it would go a lot further.

Windmills have their drawbacks: They make a fierce racket and are eyesores. Objections from neighbors are enough to kill off some wind farms (the probable outcome for a project that would clutter the view outside Hyannisport, Mass., for instance). Isn’t this a big problem in densely populated India? Not as much as you would expect. India has, in fact, large tracts of open land in rural areas. You need 15 to 20 acres of space for each megawatt of peak capacity. Suzlon has built Asia’s largest wind farm, at 500 megawatts, near Kanyakumari, on India’s southernmost tip. The blades feed off a 15mph trade wind.

India itself could easily keep Suzlon busy in the years to come. But Tanti is keen to expand abroad. “This is a global business, and we want to also grow in the global market,” he insists. Worldwide, the wind energy industry is worth $11 billion in annual equipment, growing 27% a year for the past five years. BTM Consult ApS, a renewable-energy consultancy in Denmark, predicts that global installed capacity for wind power will more than double to 124 gigawatts by 2009. Tanti is positioning Suzlon to get a fair chunk of that growth by being a low-cost producer and is collecting engineering talent so Suzlon can continually improve technology.

“Tulsi is a tiger with a burning desire to play on the global stage. He wants Suzlon to be among the top three wind energy companies in the world,” says Ashish Dhawan, senior managing director, ChrysCapital, a private equity firm in Mumbai that made a timely $11 million investment in Suzlon in 2004. (ChrysCapital bought shares at 27 rupees; the ones it has hung on to are worth 1,052 rupees, or $23, a share.)

Can a relative newcomer seriously challenge the Europeans, who have dominated the wind electricity business in the past 40 years? Until its public offering in 2005 Suzlon was virtually unknown and had to hard-sell its credentials. “Now we can tell our potential customers that we’re a $6 billion [market cap] company!” beams Tanti. In a marketing drive led by Tanti’s younger brother Girish, an electronics engineer, Suzlon has established a marketing outpost in Denmark to canvas for customers outside India. The company has made headway in the U.S. and China and, more recently, Australia.

Suzlon started selling in the U.S. in 2003, when it landed a contract with DanMar & Associates, a Minnesota development firm, to supply 24 turbines in southwestern Minnesota. Suzlon clinched the deal not only because it could supply at prices 10% lower than its European rivals. “Their design and technology was better suited for our wind resources in the U.S. Midwest and 10% more efficient than that of competing providers,” says DanMar’s founder, Dan Juhl, who has followed up with repeat orders. Turns out that Suzlon’s robust turbines could best withstand extreme weather conditions.

With orders worth $600 million in hand from U.S., Chinese and Australian customers, Suzlon has invested in a service-outlet/rotor-blade factory in Pipestone, Minn. At 140 feet, the blades are longer than the wing of a 747, so they are too expensive to transport across continents. Building them closer to the customer location obviates the logistical issues of transporting them from India. “We’re an Indian company that’s creating 300 jobs in the U.S.,” boasts Tanti.

Top Five Suppliers 2005 in New MW Installed (U.S.)

Suzlon is growing fastest among the world’s biggest turbine makers.

MW (THOU)

GE Enegry

1433

Vestas

700

Mistubishi

190

Suzlon

55

Gamesa

50

Total New MW

2428

Source: American Wind Energy Association.

The same kind of venturesome spirit that drives Tanti now was what set the Suzlon train in motion. Spurning their father’s construction business in Gujarat, Tanti and his three siblings moved into textiles in the 1980s. They started processing polyester yarn, then graduated to making furnishing fabrics. The decision to shift again, into wind energy, was a brave one. The industry was in the dumps, as it had been given a bad name by unscrupulous companies that lured customers with the bait of tax breaks. But projects were ill conceived, often left incomplete with no maintenance or service support to speak of. Banks wised up and stopped lending for wind power projects. The brothers saw the opportunity for a producer to not only build the wind turbine but also provide maintenance and service.

The experience seems to have kept the brothers tight. “We have a common store, but our kitchens are separate,” is how Tulsi Tanti puts it, though even today they host each other frequently at their respective flats.

Selling some family property, the Tantis put together $600,000 as seed capital to start Suzlon. They shopped around for technology in Europe, but no one was willing to give it without having an equity stake in the venture. Finally Sudwind, a small German company, agreed, provided Suzlon bought ten turbines. Tanti convinced ipcl, a petrochemicals company that had been supplying raw materials for his yarn business, to sign up as Suzlon’s first customer. Suzlon completed ipcl’s 3.5-megawatt project, using Sudwind’s turbines, to meet a three-month deadline. Tanti claims that ten years on, this first wind farm continues to run at 97% efficiency.

Electricity-Generating Capacity MW by Type (2004)¹

Fossil fuels remained dominant sources of power in the U.S. (latest available year).

MW (THOU)

Coal

313

Natural Gas

224

Dual-fired²

172

Nuclear

100

Hydroelectric

99

Petroleum

34

Wind

6.2

Wood

5.9

Waste

3.8

Other

6.5

¹Summer capacity. ²Gas/petroleum

Source: U.S. Energy Information Administration

But the brothers, three of them engineers, wanted to prove their technical prowess by producing their own turbine. Their research efforts got a boost when Sudwind went bust in 1997. They hired Sudwind’s engineers and created an R&D center in Germany. The subsequent acquisition of a manufacturer of rotor blades in the Netherlands rounded out the business.

By 1999 Suzlon had introduced its partly homegrown turbine into the market. Today the company has researchers in Germany, the Netherlands and India looking for ways to squeeze more juice out of the air. At the same time, Tulsi Tanti is consolidating his hold on component suppliers. In March Suzlon acquired Hansen Transmissions International, a Belgian maker of gearboxes, for $565 million.

One of Suzlon’s avid customers is John Deere, the farm-machinery maker, which has gotten into the business of brokering and financing windmills. Deere already had the attention of farmers; why not persuade them that electricity is just another crop to be harvested? In a typical deal the project company owns the turbines; Deere owns a majority share of the company while the farmer gets a minority stake. (The farmers don’t lose crop land, as they often farm right to the base of the turbine.) Typical land rent paid to the farmer is $2,000 to $4,000 a year per turbine. “We felt that Suzlon, which was learning to become a global supplier, was the best option for our small, community-based projects,” says David Drescher, vice president of the wind energy group at John Deere Credit.

Drescher says that a wind turbine can be built on a Minnesota farm at a cost of $1.3 million per megawatt installed. Assuming a 35% load factor, the turbine can produce electricity at 4 to 7 cents a kilowatt-hour. Throw in 3 cents in federal and state subsidies and the electricity is competitive with the output from a new coal-fired plant.

Over the long term, insists Tanti, wind power will be competitive with fossil fuel power even without subsidies. “We don’t need government handouts to survive,” he declares. That remains to be seen.

By the Numbers

Juice Machines

Everybody’s looking to plug in.

$1,300 Cost of a typical U.S.wind farm per kilowatt of installed capacity.

10,000 Number of kilowatt-hours the average U.S. household consumes in electricity per year.

5,000 Amount of wind capacity in megawatts to be added in the U.S. over the next five years.